Forex is the shortening of foreign exchange, sometimes referred to as FX or currency trading. It is the exchange of one currency for another, made at an agreed price. The forex market is the place where such currency trading occurs and is the largest, most liquid market in the world with an average daily trading amount of more than $5 trillion.
What forex means for the global economy is huge. There is a need to trade currencies around the world to conduct foreign trade and business, which is why the market is so large. The market also provides many opportunities for investors to profit from the changing values of currencies, but you must understand what is forex before you can do so.
What is the Forex Market?
The forex market is where businesses, governments, banks and traders come to buy, sell and speculate on currencies. It is open for 24 hours a day, 5 days a week as it has trading centers in different time zones across Sydney, Tokyo, Hong Kong, Singapore, Frankfurt, Zurich, London and New York.
With no central marketplace, forex trading is conducted electronically over the counter. This means the market is active at all hours, resulting in price fluctuations and many opportunities to make gains from currencies rising or falling in value throughout the day. A broker is required to begin trading on the markets.
What is Forex Trading?
The basic concept of FX trading is similar to most investment strategies; buy a currency when it is low and then sell for a profit when it is worth more. You buy one currency with another, therefore exchanging your starting currency for one which you believe will increase in value.
The most popular method for forex trading is on the spot market, which is what we offer at Sharp Trader. Here, currencies are bought and sold at the current price. The price is based on supply and demand and many other factors including interest rates, inflation levels, political stability, economic performance and more.
Why Trade Forex?
Once you understand and can answer the question ‘what is FX trading?’ you should be ready to begin investing in currencies. Still, you may know what forex means but be unsure about entering the FX market. There are various reasons to consider trading forex:
- Largest, most liquid market in the world
- Trading opportunities 24 hours a weekday
- Only need to focus on one or two currency pairs
- Commission-free trading
- Forex is a leveraged product
Learn more about the market so you are comfortable in answering ‘what is forex?’ and begin your trading career at Sharp Trader.